Painful action required
While members of the commission who wrote “Choosing the Nation’s Fiscal Future” disagree on many policy matters, the report states, “We are unanimous that forceful, even painful, action must be taken soon to alter the nation’s fiscal course.”
Not to do so risks a fiscal crisis that could throw the country back into recession, spark an interest-rate increase that will heighten what businesses and consumers pay for credit, and risk a downgrade in the nation’s credit rating. Sounds much like the crisis created around raising the debt ceiling.
“Choosing the Nation’s Fiscal Future” proposes a decade-long time frame that uses as its primary metric the size of the government’s debt as a percentage of the nation’s gross domestic product (GDP).
The debt, which was about 40% of GDP just a few years ago, is now close to 100% following the recession and stimulus—the highest rate since the end of WWII.
The project’s committee proposes 60% GDP as an initial goal, believing that target is achievable over the next decade or so. But it will require spending restraints, including cuts to entitlement programs and revenue increases.
The latter is the primary stumbling block responsible for our current political gridlock—particularly as Tea Party Republicans in the U.S. House of Representatives refuse to consider any additional revenue, including the elimination or reform of tax expenditures or loopholes.
Progressives, on the other hand, will have to accept that a lower ratio means spending restraints and reform they would have found unacceptable only a few years ago.
The committee believes 60% is an appropriate balance between the risks associated with the current high ratio and the difficulty in implementing policies consistent with a lower ratio. It lays out different potential revenue and spending scenarios that our policymakers could choose among to hit that goal.
Beyond the next decade, the committee recommends additional reductions in the ratio to give the nation flexibility to handle any major crisis that could come along.
On the bright side, if our lawmakers find common ground and embrace the need for spending restraints and revenue enhancement, then the distasteful battle over raising the debt ceiling in 2011 may prove to have been a good thing for the nation.
If common ground isn’t discovered, then as a nation we may want to respond as white-tail deer do to a threat—turn and run for the hills.
I purchased “Choosing the Nation’s Financial Future” when it was published in 2010, but the entire report is available here at no cost.
You can download the report in its entirety or by specific chapters. The website is worth visiting as it has become a forum for moderated debate and an aggregator of relevant information on the nation’s fiscal crisis from a wide array of sources.